Servicing

Consolidated earnings of the 12 Federal Home Loan Banks fell 42.3% in the third quarter due to lower interest rates and losses recorded by three FHLBanks.The FHLBanks' Office of Finance reported that earnings totaled $285 million in the third quarter, down from $494.0 million in the third quarter of 2002. "The decrease in Q3 relates primarily to an $82 million decline in net interest income due to lower interest rates and a decrease in combined other income of $169 million," the Office of Finance said. The "combined other" income figure also reflects the previously reported losses posted by the New York, Pittsburgh, and Atlanta FHLBanks. The third-quarter financial report shows that the FHLBanks' holdings of one- to four-family mortgages totaled $108.0 billion as of Sept. 30, up from $60.6 billion at the beginning of the year.

The increased amount of credit enhancement required in residential mortgage securitizations affected by predatory lending law risk can be "somewhat mitigated" if an analysis of the originators' compliance procedures shows that the originator has "significant strengths in this area," according to Fitch Ratings.If such strengths are demonstrated, "credit enhancement might then be reduced, although some increased enhancement would remain since no originator is viewed as completely free of concern," Fitch said in a Nov. 12 report. Fitch can be found on the Web at http://www.fitchratings.com.

San Antonio-based USAA has topped the J.D. Power and Associates customer satisfaction rankings for the largest national mortgage lenders.J.D. Power said USAA, which specializes in lending to military personnel, scored higher than the other 30 lenders in its 2004 Home Mortgage Study in each of the four factors that affect satisfaction: day-to-day administration of the account; billing and payment process; customer-initiated contact experience; and the loan origination process. J.D. Power also reported that customer satisfaction with home mortgage lenders in general had risen for the second year in a row. "There is a move to centralize the day-to-day servicing of mortgages," said Jeremy Bowler, director of the finance and insurance practice at J.D. Power. "The challenge lenders face is to deliver the same quality of customer care and still remain economically competitive. USAA has done an exemplary job of delivering personalized service to its members." It was the second consecutive year that USAA topped the J.D. Power rankings. The other lenders ranking in the top five in overall satisfaction were: Branch Banking & Trust, SunTrust, Countrywide Home Loans, and Wells Fargo. J.D. Power can be found online at http://www.jdpower.com.

Mortgage-related securities issuance has continued at a record pace, reaching a total for the first three quarters that exceeds the total for all of last year, according to The Bond Market Association.Total mortgage-related issuance through Sept. 30 was $2.58 trillion, up from last year's record total of $2.31 trillion. TBMA can be found online at http://www.bondmarkets.com.

Fifteen mezzanine and subordinate classes from 12 ContiMortgage Home Equity Loan Trust transactions from 1997 through 1999 have been placed under review for possible downgrade by Moody's Investors Service.The affected classes were as follows: series 1997-1, classes M-1 and M-2; series 1997-2, classes M-1F and M-2F; series 1997-3, class M-2F; series 1997-4, class B; series 1997-5, class B; series 1998-1, class B; series 1998-2, class B; series 1998-3, class B-I and B-II; series 1998-4, class B; series 1999-1, class B; series 1999-2, class B; and series 1999-3, class B. "For the 1997-1 through 1997-5 transactions, high losses have exhausted the credit enhancement provided by overcollateralization, resulting in writedowns on a number of subordinate classes," the rating agency said. "Additionally, recent increases in losses on pools backing the 1998 and 1999 ContiMortgage transactions are resulting in losses that exceed the amount of excess spread available, thus reducing the amount of credit enhancement provided by overcollateralization." Moody's noted that Fairbanks Capital Corp. acquired the servicing rights to all the ContiMortgage transactions in July 2000 from ContiFinancial, and that Fairbanks' servicer ratings were downgraded from Strong to Below Average in May 2003.

Silverado Financial Inc., Campbell, Calif., has announced an agreement to acquire San Francisco Funding Inc., a mortgage bank based in San Diego.The terms of the deal were not disclosed. Silverado projected that the acquisition would produce up to $400 million in loan volume and $6 million in gross revenue for the current year. As part of the deal, the company will purchase $15 million in warehouse lines and licenses to operate in eight Western states. "This acquisition represents a key component of our future business mix and will immediately make Silverado a full-fledged mortgage bank," said John Hartman, Silverado's president and chief executive officer. "Management will now pursue acquisitions of mortgage brokerage operations to provide greater distribution of our lending products." In April, Silverado (formerly Rhombic Corp.) announced the adoption of a new business model focused on the acquisition of established, profitable mortgage brokerage and banking operations in Northern California.

Servicing executives take note: the former chief executive officer of Fairbanks Capital has agreed to pay $400,000 as part of the federal settlement over allegedly abusive loan servicing practices.Former CEO Thomas Basmajian's $400,000 payment is part of the firm's settlement with the Federal Trade Commission and the Department of Housing and Urban Development. During the news conference announcing the settlement, HUD Secretary Mel Martinez said the settlement also brings to an end a criminal investigation involving the allegedly abusive practices by Fairbanks.

Fairbanks Capital has reached a settlement with the Federal Trade Commission and the Department of Housing and Urban Development that will create a $40 million "redress fund" to reimburse consumers who were allegedly harmed by Fairbanks' loan servicing practices.The FTC will administer the fund. The settlement also provides insight into what the FTC and HUD consider appropriate guidelines and procedures for servicing subprime home loans. At a news conference in Washington, FTC Chairman Timothy Muris said the settlement brings to a close "deceptive practices" that forced consumers to pay hundreds of dollars in "phony charges" or face foreclosure. Specifically, Fairbanks was accused of failing to post payments in a timely fashion and then charging late fees, and of charging fees for services that were unnecessary or were not performed. "Those who service consumers' loans, no less than those who lend them the money, must treat consumers fairly and honestly," Mr. Muris said. Since consumers cannot voluntarily change loan servicing companies, compliance on the part of servicers is all the more important, he said. Fairbanks chairman Brad Shuster said in a statement that the settlement is a positive development and that the company "now has in place what we believe are leading-edge practices for nonprime consumer home loan servicing." The FTC can be found online at http://www.ftc.gov.

Wildfires in Southern California caused between $2.5 billion and $3.5 billion, somewhat higher than previous industry estimates, according to Moody's Investor Services.The "vast majority" of these losses will be absorbed by primary personal lines insurers, with reinsurance companies taking a larger portion of the liability in "some exceptional cases," Moody's said. The agency doesn't plan to alter its rating or outlook of the insurance sector as a whole because of the damage, but said that "losses will be evaluated in the context of earnings and capitalization expectations for individual firms' ratings." Moody's can be found on the Web at http://www.moodys.com.

American Business Financial Services Inc., Bala Cynwyd, Pa., has closed a $173.5 million fixed-rate mortgage loan securitization, with servicing released, via three subsidiaries.ABFS Mortgage Loan Trust 2003-2, structured as a real estate mortgage investment conduit, was privately placed. It was closed under the company's adjusted business model, which emphasizes whole loan sales, supplemented by smaller privately placed securitizations, ABFS said. JP Morgan Securities was the sole placement agent for the transaction, and EMC Mortgage Corp., a division of Bear Stearns & Co., was selected as the servicer. The company's three subsidiaries are American Business Credit Inc., Home American Credit (d/b/a Upland Mortgage), and American Business Mortgage Services Inc. The company's website address is http://www.abfsonline.com.